Markets from Brazil to China have stalled since mid-May amid growing expectations that the U.S. Federal Reserve will likely end its $85 billion in monthly bond purchases. This amount was an important flow of easy money into emerging markets at a critical time. In addition, last week, the International Monetary Fund (IMF) lowered its opinion of the global economy’s outlook, primarily due to lack of growth in emerging markets.
This has spurred some investors to seek cheap stocks and currencies, believing that the almost two months of outflows have cleared away much of the “hot money” (i.e. hedge funds and investors with a short time frame) that had pushed asset prices higher. Now, they can begin to see faster growth and higher yields than can be found in the developed world.
Advertising: The quiet influencer
Big corporations know the importance of marketing and they are willing to pay for it. Last year, General Motors Company (NYSE:GM) spent an impressive $4.8 billion on advertising, while rival Ford Motor Company (NYSE:F) followed closely with $4.2 billion in ad spending. In another heated battle, AT&T Inc. (NYSE:T) spent $3.3 billion, while Verizon Communications Inc. (NYSE:VZ) spent $3.6 billion.
The obvious accepted conclusion is that thriving companies spend on advertising. This means that media and ad stocks will likely perform as other consumer-based companies — poorly when the economy contracts and grow when the economy begins to expand. The consideration then is that media and ad stocks will be the ‘first movers’ as companies try and anticipate growing spending and get in early on advertising campaigns.
U.S. giants
Two prominent names in media in the U.S. are Time Warner Inc (NYSE:TWX) and Twenty-First Century Fox Inc (NASDAQ:FOXA) — a recent formation from the Fox Entertainment Group.
Time Warner Inc (NYSE:TWX) operates as a media and entertainment company both in the U.S. and internationally. It has followed the trend of dipping last month (down to around $56 in mid June), but has recently attained a new 52-week high of $62.10. The company currently trades at a forward P/E of 16.78. Additionally, the company’s long-term estimated EPS growth rate is 10.1% and the stock has generated a year-to-date return of roughly 25.2%, which is no small feat.
For all the gaff that it gets, Twenty-First Century Fox Inc (NASDAQ:FOXA) is still doing things right in terms of growth. Most analysts recognize the upside potential of the media titan, noting the Twenty-First Century Fox Inc (NASDAQ:FOXA) Sports 1 network, which will launch next month, and the potential for a higher leverage target, which could mean more buybacks, and multiple expansion now that the slow-growth assets are no longer consolidated.
